Professional expenses become advantages: why?
As a freelancer you need quite a few things to be able to practice your profession. For example, you need a car to move around, a laptop to do your work or a LinkedIn subscription to maintain your network. We call these professional costs, and these are pre-eminently the elements enabling you, as a freelancer, to design your income package yourself.
The advantage lies in the deductibility of these professional expenses
. But what exactly does that mean?
To do this, let us first clarify a number of concepts:
- Revenue: Is the total of the amounts that you invoice to your customers (excluding VAT). In other words, this is the income from your business.
- (Deductible) professional expenses: These are the expenses you incur in order to be able to practice your profession.
- Social contributions: Is the part of your income that you must invest to be entitled to our Belgian Social Security, for example: reimbursement of a doctor's visit, only paying patient co-payments on medication, allowance in the event of loss of income due to illness or accident.
- Taxable income: After professional expenses have been deducted from your turnover, a taxable income remains for you as a person. Your social contributions and personal income tax will be calculated on this basis.
- Personal income tax: The part of your income that is withheld to finance the Belgian government, such as road construction, infrastructure, education, civil servants, etc.
- Private part of the professional expenses: For a number of professional expenses it is rightly considered that you also use them privately. As a result, these expenses cannot be deducted in full from your sales revenue to determine your income. In other words, you will have to pay part of those expenses from your net income.
- Net income: This is what is left when personal income tax has been deducted from your taxable income. Of course, you will have to pay for the private part of your professional expenses, the remainder being the part of your income you can freely spend on your personal livelihood (food, vacation, going out, hobbies, etc.).
Deductibility means that the expense can be deducted from your turnover before you pay tax on your income. In other words, every professional expense is a means to keep your taxable income low
so that your social security contributions and personal income tax also remain as low as possible. Deductibility is usually indicated by a percentage indicating which part of this expense may be regarded as a professional expense.
Where is the advantage actually located? Below we list six areas in which professional expenses can also be profitable in private life.
When purchasing a bicycle or car, the advantage lies in the fact that you will pay a large part of the costs with untaxed income for both the purchase and the maintenance. This means that you may still be able to opt for that slightly larger or more comfortable car. Would you like an electric car? Given that the deductibility for cars is partly determined by their environmental friendliness, electric cars can be 100% deductible, despite private use. An electric bicycle or speed pedelec can even be 120% deductible (in other words, you can deduct more than you actually pay in costs!).
For public transport and the sharing economy, you distinguish private or professional trips mainly per journey.
For all mobility choices, the self-employed person must choose 100% for themselves which means of transport best meets their needs. No company policy telling you which mode of transport to take, let alone which make/model/colour, etc.
Insurances are the ideal way to take advantage of a professional expense in your private life.
We list the most popular:
3. Personal/professional development
- Pension: Through the FCPSE and the IPC, our legislator has made it possible to set aside amounts for your pension. The amounts set aside are 100% deductible as a professional expense and will be paid to you on your 65th or 67th birthday. Moreover, you can also withdraw (part of) the saved sums earlier on if they are used for the purchase or renovation of real estate.
- Guaranteed income: Also 100% deductible are the guaranteed income insurances which, as a benefit, mainly bring peace of mind in healthy days. Do you have an accident or illness that makes you incapacitated for work? Then this insurance ensures that you do not have to worry about your financial situation (on top of the concerns already caused by your illness or accident).
- Liability: This insurance is also considered 100% as a professional expense and also serves to let you carry out your work with peace of mind. Any professional errors that you would make at your customer's location as a result of which the latter suffers damage are covered by this insurance.
- Hospitalisation: These insurances are now part of many compensation packages for employees. Just like for those employers, hospitalisation costs are NOT deductible as a professional expense for the self-employed. You must therefore pay this cost in full from your net income.
This advantage is often overlooked, but it is a great differentiator compared to employees because, as a self-employed person, you can freely choose how to invest in your personal development. Books, training, seminars or online courses: you decide which elements are important to you.
Moreover, you can also let yourself be guided to get the best out of yourself through coaching. As an entrepreneur, your personal development
is of vital importance for the future of your business!
The equipment you are going to use is often also something that you will benefit from privately. Just like with a means of transport, this enables you perhaps to buy that slightly higher performance laptop or phone because of your professional needs. That better device will therefore prove an ideal resource for your private affairs.
Tools also include, for example, software or subscriptions to web tools that you need for your work. You choose which ones, and these are 100% deductible as a professional expense.
As a freelancer, you cannot afford to get disconnected from your network and clients. In times of Covid, once again accentuated! That is why your internet subscription and your telephone subscription are indispensable resources and are therefore for the most part regarded as deductible professional expenses.
In terms of workspace, you can rent a workspace in a co-working, for example, but if you have space at home to set up a workplace, you can also enter part of your home costs as a deductible professional expense. Please note that, as with all professional expenses, the percentage of the expenses that you deduct must be in proportion to the actual use. You can work with actual costs (bills for rent/gas/water/electricity) or you can work with a lump amount. Be sure to check with your accountant what is the most interesting solution for you.
Professional expenses are therefore the ideal way to design your income and benefits yourself, tailored to your needs.
Are you considering starting out as a freelancer?
But would you like to discuss your situation and ideas with an expert?